John Kolhoff, chairman, National Association of State CU Supervisors
Regulators’ interest in credit union service organizations (CUSOs) should focus specifically on the impact these organizations’ services deliver credit unions rather than their overall safety and soundness.
But it can be difficult to determine a CUSO’s direct impact on a credit union’s bottom line due to secondary subsidiaries and other interconnected players. And there’s no efficient pipeline to share this information with other involved parties.
That’s the CUSO trap for regulators, John Kolhoff, chairman of the National Association of State Credit Union Supervisors (NASCUS), told attendees of the National Association of Credit Union Service Organizations’ (NACUSO) annual conference Monday in Lake Buena Vista, Fla.
“We don’t need to regulate CUSOs, we just need to understand how they work,” said Kolhoff, who also serves as director of the Michigan Department of Insurance and Financial Services' Office of Credit Unions. “The tools are there to go after [CUSOs] if there’s an exorbitant amount of risk we need to mitigate.”
NASCUS has expressed this viewpoint to NCUA, which lacks direct regulatory authority over CUSOs but is implementing requirements for the organizations through directives to credit unions. NCUA Chairman Debbie Matz recently reaffirmed the agency’s intent to obtain direct authority over CUSOs.
“We need examination oversight, not enforcement or regulatory oversight,” Kolhoff said.
CUSOs allow credit unions to innovate, reduce costs, increase income, become more efficient, and share risks, said Kolhoff, who classifies them along with third-party vendors who perform similar functions.
“What I need to know is how your services directly relate to the safety and soundness of the credit union,” Kolhoff said. “That’s all I should be looking at.”
To address risk, Kolhoff believes regulators should focus on credit unions’ due diligence to ensure they’re aware of the risks of their relationships with particular CUSOs and that they’ve taken steps to mitigate those risks.
“Instead of making those decisions, we are reviewing those decisions,” he said.
Kolhoff added that credit unions would benefit from a shared information pool about CUSOs. He proposed developing a CUSO registry credit unions could access, similar to the Nationwide Mortgage Licensing System and Registry.